China’s National Bureau of Statistics recently released data showing that the country’s second-quarter GDP rose by 4.7% year on year, falling short of expectations set at 5.1%. Despite this, industrial production saw a year-on-year growth in June that surpassed estimates, reaching 5.3%. The growth in high-tech manufacturing value added also outperformed expectations, rising by 8.8% in June. However, the data also revealed a decline in housing-related wealth in China, which grew by only 2.2% in 2023, significantly lower than the average annual pace between 2016 and 2021.
June retail sales in China also missed estimates, with only a 2% increase compared to the forecasted 3.3% growth. Oxford Economics Lead Economist Louise Loo highlighted that discretionary retail spending experienced a sharp sequential decline, possibly due to the impact of the April 2022 Shanghai lockdowns. The data indicated a slowdown in investment in infrastructure and manufacturing year-to-date in June compared to May, while real estate investment dropped by 10.1% at the same rate.
The urban unemployment rate in June remained at 5%, with the youth unemployment rate standing at 14.2% in May. The average per capita disposable income for city residents showed a nominal growth of 4.6% from the previous year, reaching 27,561 yuan. In contrast, rural disposable income grew at a faster pace of 6.8%, yet it only amounted to 11,272 yuan, less than half of what urban residents earned. The disparity in income levels raises concerns about the country’s economic stability and growth trajectory.
China’s Third Plenum, a high-level policy meeting, is set to commence, aiming to address the challenges faced by the economy. Experts like Bruce Pang from JLL emphasize the importance of boosting confidence and stabilizing expectations for sustained economic recovery. Given that China’s GDP only expanded by 5% in the first half of the year—below the target growth rate of 5%—and uncertainties loom due to trade tensions, policymakers may need to consider increasing fiscal support and easing monetary policies in the latter part of 2024 to stimulate growth.
Trade Dynamics and Consumer Behavior
China’s exports outperformed expectations, rising by 8.6% year on year, while imports fell by 2.3% in June. Retail sales of physical goods online surged by 8.8%, indicating a shift in consumer behavior towards digital platforms. However, challenges remain in the retail sector, with certain categories like cosmetics experiencing a significant decline in sales. The muted domestic demand is reflected in consumer prices, which rose by 0.2% in June, missing projections.
China’s credit data revealed a notable decrease in the growth of broad money supply and new yuan loans in the first half of 2024 compared to the previous year. Household loans grew by 1.46 trillion yuan in the first half, indicating a slowdown in borrowing activity. The People’s Bank of China reported that loans to businesses increased by 11 trillion yuan, slightly lower than the previous year. The focus on enhancing monetary policy transmission signals a shift in the central bank’s approach to managing credit growth.
China’s economic landscape faces challenges in achieving sustainable growth amidst global uncertainties and internal disparities. The data points to the need for targeted policy interventions to stimulate demand, enhance market sentiments, and address income disparities. By recalibrating monetary and fiscal policies, China can navigate the current economic headwinds and chart a path towards robust and inclusive growth in the future.